September 5, 2017

The answer is not what you might expect.

You could be a millionaire and have bad credit or you could be poor as dirt and have good credit. 

Having good credit really means that you are in debt already – someone who is not in debt does not have good credit.

But whether you have good or bad credit does not necessarily mean you will have access to more debt.

It turns out that 70% of people filing for bankruptcy have strong credit scores – they have good credit, but they still do not qualify to borrow more money.  These people are unable to consolidate existing debts and they can no longer afford the payments they have.  So having a strong credit score or what most people refer to as “good credit” isn’t very helpful.

On the other hand a person who has always used cash for their purchases and has no history of usng credit (debt) will probably have a weak credit score.

The majority of Canadians are carrying debt, most use debt to make payments for other debts,  For instance using a line of credit to transfer other debts such as furniture store debts or using one credit card to transfer another’s balance or to make minimum monthly payments.  But this activity can actually improve a credit score rather than weaken it.

A positive credit score is only one tool in the decision making process of most lenders.  Some will hapily consolidate their own lending to one convenient loan but will not bring in someone else’s risk to their portfolio.

So how can you improve your access to more debt (credit)?  By changing your debt service ratio – in other words paying down existing debts so that you have more income available to make payments for new debts.

But ask yourself this:  “would I rather owe debts for everything I own or owe nothing to anyone?”